A month has gone by since the last earnings report for Pool Corp. (POOL). Shares have added about 3.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Pool Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Pool Corp’s Q1 Earnings & Revenues Miss Estimates
Pool Corp reported lower-than-expected first-quarter 2019 results, wherein both earnings and revenues missed the Zacks Consensus Estimate for the second straight quarter.
Adjusted earnings of 59 cents per share in the quarter missed the Zacks Consensus Estimate of 63 cents but increased 11.3% from the year-ago quarter number. Meanwhile, quarterly net sales totaled $597.5, which fell short of the consensus mark of $612 million but improved 2% year over year. Revenue growth can be primarily attributable to improved performance of the company’s base business.
However, cooler and wetter weather condition mostly in Western United States had a negative impact on the company’s overall results.
Pool Corp reports operations under two segments: The Base Business segment (constituting the majority of the business) and the Excluded segment (sale centers excluded from the base business).
The Base business segment recorded 0.8% sales growth to nearly $587.3 million year over year. Operating income at the segment increased 14.9% to $39.2 million. Also, operating margin expanded 90 basis points (bps) from the year-ago quarter number.
The Excluded segment reported net sales of $10.1 million, up from about $3.1 million registered in the prior-year quarter. The segment incurred operating loss of $0.8 million compared with the prior-year quarter’s loss of $0.5 million.
Operating Highlights & Expenses
Cost of sales in the first quarter increased 0.7% from the prior-year quarter. Gross profit, as a percentage of net sales, increased 90 bps to 29.2% from the year ago, driven by a robust base business.
Operating income increased 14.4% year over year to $38.4 million. Also, operating margin expanded 70 bps to 6.4% from the prior-year quarter. Selling and administrative expenses too increased 2.8% year over year. Net income totaled $32.6 million, up from $31.3 million recorded in the year-ago quarter.
Adjusted EBITDA increased to $48.6 million in the quarter from $43.4 million in first-quarter 2018.
As of Mar 31, 2019, cash and cash equivalents amounted to $28.6 million compared with $8.8 million on Mar 31, 2018. Total net receivables, including pledged receivables, remained flat and inventory levels grew 16% as of the same date compared with Dec 31, 2018. Its long-term debt summed $699 million, up 18.7% from the prior-year quarter. Goodwill decreased 1% year over year.
Cash provided by operations declined to $28.8 million in the quarter compared with $44.1 million used in the prior-year quarter. The upside can be attributed to payments for pre-price increase inventory purchases in 2018.
For 2019, the company expects EPS in the range of $6.09-$6.39, up from the prior guidance of $6.05-$6.35. The uptick is likely to be driven by additional tax benefits realized from ASU 2016-09 in the first quarter. The Zacks Consensus Estimate for the year is pegged at $6.19.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Pool Corp. has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Pool Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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